“ … Don’t look at the investments underneath, look at the personalized rate of return of each individual.”

Case Study: XYZ Corporation

Targeted Strategies to Improve Participant Success

A company with 6,500 participants and $850 million in retirement plan assets had closed its defined benefit plan in 2008 and wanted to help participants achieve a more “defined-benefit-like” experience within the defined contribution plan. Objectives included:

Provide a means for all participants to save enough

Use behavioral finance to promote successful outcomes

Let retirees take income while benefiting from plan features

Working with its investment advisors, the company focused on the areas they could influence to develop actionable strategies:

Increase participation through auto-enrollment of new and existing participants

Increase the savings rate with an 8% default match and auto-escalation each year

Set goals where success might look something like this:

Steps to support keeping retirees in plan:

Create a “Retirement Tier” in the investment menu with liquid retirement income options

Evaluate your TDF to ensure it meets retiree needs

Enhance plan communications to highlight benefits of staying in plan

Plan sponsors can partner with outside consultants or advisors on the plan design and investment menu issues to help oversee implementation and measurement.

Taking Action

Working with their consulting and recordkeeping partners, sponsors can develop and implement plan changes that can improve participation, savings, returns and retiree involvement. The steps are:

Measure plan

Set plan goals

Direct your efforts toward plan goals

Measure again — and again and again!

Repeat the Process Regularly

The process of filling in the gap between where the plan is now and where the sponsor wants it to be involves constant measurement — and continuous improvement. If the plan does not meet its initial success objectives, sponsors may want to take additional steps to make it stronger. These should then be measured — and measured again — regularly.

Start now with year-end planning to implement measures that can encourage success for all your DC plan participants.

Conclusion

Concerns about participant retirement readiness have driven many plans to take actions such as participant education to improve decision-making. The results of such efforts are mixed, because they rely on participants taking action.

Participants will be successful if plans are successful. Plan sponsors, by focusing on the things they themselves control, can help drive more successful participant outcomes.

Takeaways

Plan sponsors have the tools to influence participant outcomes in three areas: participation rate, savings rate and investment results.

By setting measurable objectives in each of these areas, XYZ Corporation made progress in meeting its goal of a “defined-benefit-like” experience.

The process of setting and measuring success objectives should be repeated regularly with the goal of continuous improvement.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer.

Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.